April 4 (Bloomberg) -- Afghanistan’s commerce minister said
his country hopes the U.S. will give it leeway from economic
sanctions intended to curb imports of oil from Iran.

“We hope that our special situation should be taken into
consideration,” Anwar-Ul-Haq Ahady, the Afghan minister of
commerce and industries, said yesterday in an interview in
Washington. “We don’t have much of an alternative.”

The request exposes a conflict between the Obama
administration’s efforts to curb Iran’s suspected nuclear
weapons program and its campaign to bolster Afghanistan’s
economy and government so the NATO-led international coalition
is able to withdraw most of its forces by the end of 2014.

Afghanistan is struggling to shore up its finances, and one
of Ahady’s deputy ministers, Mutasil Komaki, said in an
interview in Kabul last month that Iran provides about 50
percent of the country’s oil imports. The next-biggest sources
are Russia and then Turkmenistan, which supplies mainly natural
gas, Ahady said, and now the war-torn nation is looking to those
countries and others to reduce its dependence on Iran.

“The conflict between Iran and the United States is, to
some extent, played out in Afghanistan, especially as Iran tries
to counter U.S. influence in that country,” Alireza Nader, a
senior international policy analyst at the RAND Corporation in
Arlington, Virginia, said in an e-mail. “The effort to stop
Iran’s nuclear program may at the same time hurt other U.S.
policy objectives -- for example, maintaining a secure and
stable Afghanistan.”

Projected Growth

The more favorable scenarios for Afghanistan project
economic growth of 4.5 percent to 6.2 percent a year through
2018, down from an average 9.1 percent in the past seven years
with the influx of foreign aid, according to statistics from the
World Bank and the Afghan Ministry of Finance.

President Barack Obama cleared the way last week for
sanctions on banks in countries that import Iranian oil. Under a
law he signed Dec. 31, banks that settle petroleum-related
transactions through Iran’s central bank in any country that has
failed to show a “significant reduction” in Iranian oil
imports would be cut off from the U.S. banking system.

The law requires reductions by June 28 and countries can
avoid the sanctions if they take steps by then. The law doesn’t
define the steps needed to qualify for an exemption.

U.S. State Department officials have said they’re working
with countries who would be affected by the sanctions to
implement the requirements.

“In all our consultations, we have made clear the
importance of reducing reliance on Iranian oil and unwinding
business dealings with the Central Bank of Iran,” said Laura
Lucas, a State Department spokeswoman. “No commitments have
been made to any country regarding prospective exceptions to
U.S. law.”

Trade With Iran

Afghanistan’s trade with Iran has grown to more than $1
billion annually, placing Iran second after Pakistan’s $3
billion when transit trade via the Pakistani port of Karachi is
included. The next-largest trade partners are China and India,
Ahady said.

“Iran is becoming a very large trade partner,” Ahady said
during a briefing yesterday for reporters in Washington. The
estimated $1 billion in commerce with Iran is dominated by oil
and fuel, as well as some consumer and industrial goods, he
said.

Trade with Pakistan continues to be hampered by border
delays and regulatory disagreements that too often require high-level intervention and cost Afghan business owners in the
meantime, Ahady said.

Foreign Investment

Violence and uncertainty over how Afghanistan will fare
politically and in terms of security after 2014 are dogging
efforts to attract foreign investment. Some of those doing
business in the country probably are hedging their bets with
alternative plans, Ahady said.

“It’s only natural when there is a level of uncertainty,”
he said. “Businesspeople, they tend to be conservative in
committing their resources. There is some degree of uncertainty
in Afghanistan.”

Private investment in Afghanistan is described as low by
the World Bank, at 8.5 percent of gross domestic product, while
exports make up 2.5 percent. It has increased slightly in the
past two years, Ahady said, without providing figures.

Agriculture’s Role

Agriculture accounts for about 35 percent of Afghanistan’s
economy, down from as much as 70 percent as foreign projects and
other development boost industries such as construction.
Agriculture has “considerable” room for growth as new farming
technology stimulates production, Ahady said. The country also
is counting on untapped mining resources such as copper and iron
ore to fill some of the revenue gaps in the future.

The World Bank estimates Afghanistan’s operating expenses
will reach almost twice the level of domestic revenue by 2021,
and that the projected financing gap will be $7.2 billion in
today’s prices. The country of 30.6 million people, 75 percent
of whom are illiterate, had gross domestic product equal to $528
per person in the fiscal year that ended in 2011.

Afghanistan will need $4.1 billion a year to cover its
security expenses after 2014, including about $500 million from
its own coffers, and an additional $5 billion in economic and
development assistance, Ahady said.

While the country probably can get by with slightly less in
contributions, a failure by foreign donors to come through would
prompt an economic crisis, he said.

“There would be serious contraction to the point of
depression and a situation where you would have 20 or 25 percent
contraction in the economy,” he said. “I don’t think the
donors are going to leave us alone there.”